Q: Looking at the building-permit totals for the year, it appears there is more building activity than last year. Are there any advantages to building now?
A: The cost of construction has dropped significantly the last three years based simply on supply and demand. Materials, as well as subcontract labor, in some cases have dropped 20 to 30 percent. A lot of construction is based on commodity pricing, based on supply and demand worldwide.
Q: The national Builders Confidence Index has trended down in recent months. How would you compare Southern Oregon with the rest of the nation?
A: We're tracking with the nation. There is less builder confidence now than there has been. The effects of stimulus money has helped a little bit, especially with first-time buyers and more entry-level housing. As far as the major (broader) market, stimulus hasn't helped. Builders are viewing it as a short-term solution with less impact than anticipated. Developers and builders have to look to the future because projects in the planning right now might not be built for two or three years. The projection looking forward doesn't look good right now. That's based on the continuing, persistent foreclosure rate. Foreclosures make up over 40 percent of the market — continuing month after month after month — and are continuing to affect values in the market. Buyers are expecting builders to produce a new product at (the) same price as they can get a house in foreclosure. They forget you can't get a warranty. Quite often, things have been taken out of the house, and it hasn't been maintained, yet they want a builder selling a fully warranted house at the same price. That's being borne out by appraisers who are appraising new construction at the same value range as a foreclosed property that is most likely not in as good of condition. It's that appraisal that's affecting what lenders will lend on a new house. Until that foreclosure number gets into low teens or single digits, it is going to have an adverse effect on builders. Even though building costs are down and land value and hard construction costs are lower, everyone is working on small profit margins, if any. It's just difficult to compete with bank foreclosures.
Q: We see the monthly residential housing figures, but what has happened to the value of bare land?
A: Bare-land values have decreased, and a lot of that is supply and demand. The raw-land price is just part of the equation for development cost. Infrastructure, systems-development charges and permitting costs add to the cost of that land. In an economy like this, with distress in the system, it's hard to develop lots and come out ahead right now. Again, it's a multiple-years process, and you have to be an economist and predict the future to make decisions today. That's hard.
Q: How long will it take for land values to start climbing again?
A: When are we going to have a healthy economy again? When are people going to be re-energized to the dream of home ownership? When is (home ownership) going to have value again and not be viewed as a liability? Land values are totally predicated on those things. Nobody knows, and anybody who says they know, doesn't. Most of us who have been in this business 30 years or more did not believe this downturn has lasted as long as it has. It has had an effect on builder confidence because it ran longer than it usually runs, and there are no clear indicators showing it will turn around. Usually by now, there are indicators that things will start changing. But we have government in gridlock, and we're not getting any clear directives.
Q: What kinds of niche construction projects are builders finding?
A: Selective remodels, add-ons and updating. That's a good thing. It's bringing existing homes more current for people who choose to do that and have the money to do that. There is a little more entry-level type of building going on; the bulk of permits are for under $200,000 housing. In the past, when we have seen that type of construction, it helps fuel the middle market. We see people selling their homes and upgrading. It starts with that entry-level market, but it hasn't been enough and hasn't been sustainable. It still goes back to 40 percent of market foreclosure. It's like a wet blanket on the economy.
Reach Mail Tribune business editor Greg Stiles at 541-776-4463 or e-mail email@example.com.